Government in payday loan crackdown pledge

The Government will consider a cap on prices charged by high-cost lenders but stopped short of supporting a motion calling for immediate regulation.

Labour MP Stella Creasy had proposed a limit on the amount payday, doorstep and hire purchase lenders can charge, to be enforced as soon as possible (see the Debt Help guide).

However, an amendment to the motion by Conservative MP Robin Walker won the majority vote – of 271 to 156 – in the House of Commons today following a three-hour debate.

The amendment called for regulators to be given more time to consider new measures.

Both sides are in agreement that curbs must be placed on lenders that sometimes charge over 4,000% interest to some of society's poorest. Figures show one in ten payday loan borrowers earns £11,000 or less.

Consumer affairs minister Ed Davey said: "This is a consequence of the need to protect those on lower incomes but there is a debate on how we do this.

"It would be rash and negligent to rush into these proposals without looking at the evidence. However, we are in listening mode."

Any firm action is still a long way off as this was a debate mainly among backbenchers.

Creasy said earlier in the debate: "I am calling for a cap on the total cost of loans to protect consumers from so-called legal loan sharks.

"This is not about setting a cap on interest rates. It is also not about abolishing high cost credit."

She also slammed the high cost lending sector for trying to influence MPs with spin to derail her plans. She labelled their attitude as "disgraceful, showing self-regulation won't work".

Creasy added: "The longer we delay the longer our constituents pay these rates. The clock is ticking."

Amendment

Walker responded: "It is absolutely right the Government should act on this but caps have to be introduced in the right way. I would support the motion but with a small change to clarify that the answer to the problem is not necessarily new regulatory powers.

"The motion could be defeated if left unchanged. I am not calling for self-regulation; I want regulators to look at this."

The argument for capping costs rather than interest rates is that interest rates, which are expressed annually, are meaningless because consumers tend to borrow from high-cost firms over a few weeks rather than over a year.

For example, payday loan firm Wonga lists a representative APR of 4,214% on its site. This is based upon someone borrowing £207 over 20 days at a cost of £47.42 in charges.

A big problem with payday lenders is the punitive charges for those who pay late.

MSE thanked

Creasy and Conservative MP Justin Tomlinson, who helped her secure today's debate, also thanked MoneySavingExpert.com (MSE) for support in helping them formulate their proposals and for backing the need for financial education..

To highlight the need for a cap, Walthamstow MP Creasy revealed one of her constituents is being chased by Wonga for £1,600 as she is 40 days late paying when she only borrowed £800 in the first place.

Tomlinson stressed that Wonga is the only payday loan firm he has spoken to who will work with whatever plans the Government puts in place.

He added: "There is true cross-party support on this. If you borrow 'x' there should be a limit on what you pay back.

"I support the principle but it is essential we make things better and we should not rush in."

A separate government consultation on the issue, which was open to the public, closed last month.

The Department for Business, Innovation and Skills says it could take anywhere from "a few months to a year" before the results of the consultation are announced.

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